Break Free from Debt
- Monday, September 04, 2006
Buying what you want now and paying for it later can seem like an empowering decision, but it leads to debt that imprisons you. If you’re among the nearly half of Americans who spend more than you earn, the stress of debt threatens not just your finances, but your health and relationships as well.
God doesn’t intend for you to live enslaved to debt. With His help, you can break free. Here’s how:
Take an honest look at your financial situation. Get to know the true extent of your debt problem. Create a financial statement, on which you list all your assets (what you own) and liabilities (what you owe). Then calculate your net worth by subtracting your liabilities from your assets. Also write down a thorough list of your debts, mentioning each creditor, the debt amount, the monthly payment, the interest rate, and the number of months the debt is currently past due. Then you can see all the facts in front of you. Rather than letting guilt overwhelm you, decide to learn from your experience by finding a solution.
Embrace God’s perspective on money. Remember that God owns everything, so all your money and possessions ultimately belong to Him. Instead of asking, "Lord, what do You want me to do with my money?" ask "Lord, what do You want me to do with your money?" Understand that God calls you to be as faithful as you can when you manage your money, so every spending decision is also a spiritual decision. Recognize that debt is a curse, and freedom from debt is a blessing. Realize that incurring debt means you’re presuming upon the future, but only God knows what will happen tomorrow and whether or not you’ll truly be able to repay your debts, plus interest. Ask God to forgive you for your past financial mistakes, and help you move forward with wisdom.
Use money as a tool to fulfill your life’s purpose. Think about what matters most to you and what you’d like to accomplish during your lifetime. Pray for God to reveal His purpose for your life. If you’re married, ask God to let you and your spouse clearly see His purpose for your marriage as well. Once you’ve identified your purpose, set both short-term and long-term goals to accomplish it. Realize that money is simply a tool that can help you reach your purpose. Keep your goals in mind as you plan your finances.
Focus on the destinations on the way to financial freedom. First, begin using a spending plan and save $1,000. Second, pay off your credit cards and increase your savings to one month of living expenses. Third, pay off all your consumer debt (car payments, student loans, etc.) and increase your savings to three months of living expenses. Fourth, begin saving for major purchases (like a home or a car), begin saving for retirement, your children’s education, and, if you want to start your own business, begin saving capital for that. Fifth, buy an affordable home, begin prepaying your mortgage, and begin investing wisely. Sixth, pay off your home mortgage, completely fund your children’s education, and confirm that your estate plan is in order. Seventh, fully fund your retirement and celebrate the fact that you are now free to volunteer your time working for the Lord, however He leads you.
Create a monthly spending plan. Use a budget to stay focused on your goals and control impulse spending. List your total monthly income (if your income isn’t consistent, divide the annual average by 12) and subtract taxes and your regular giving amount to see how much income you have to spend each month. Then list your living expenses, such as housing, food, transportation, insurance, debts, entertainment and recreation, clothing, savings, medical, school tuition and child care, investments, and miscellaneous. Be sure to account for spending that varies each month by averaging the annual cost and dividing by 12. When you deduct your living expenses from your spendable income, you’ll see the amount of your monthly deficit or surplus and can begin to figure out how to change your spending habits. Before buying spending money, ask yourself: "Can I do this less expensively?" and "Do I really need this?"
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